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Critical Steps To Take For A Carefree Partnership

OCEAN CITY – After selling the successful technology firm they’d founded together, a husband and wife embarked on the carefree retirement they had long envisioned, living in a Florida resort. It didn’t take them long to realize that their new lifestyle was missing a critical ingredient: the fun of running a business together. They turned to their Merrill Lynch financial advisor, who encouraged them to carefully think through the details of their new vision. From there, the three discussed how the couple might retool their financial strategy to accommodate this revised life plan. Today the husband and wife are the happy co-owners of an art gallery on the New Jersey shore.

“Most people think they’ve made all the changes they need to make to their investment strategy before retirement, but that’s not always the way events unfold. A timely adjustment to their financial strategy in retirement can make all the difference,” says Katherine Roy, Director of Retirement Income Management Solutions with Merrill Lynch.

As you enter retirement, you’re likely to discover that no matter how you see your life playing out, it will undergo changes in the first few years. In fact, the greatest number of life shifts tend to occur during the first couple of years, as you gain a truer sense of how your lifestyle and financial strategy work together. These four steps can help you keep the two in sync:

1. Track expenditures: The first years of retirement often begin with a burst of extra spending as your new lifestyle takes shape, Roy notes. This is generally followed by a quieter period as your life achieves a level of routine, and then another rise in expenses as the need for health care increases. Whether you’ve anticipated that pattern or planned differently, you’ll need to stay aware of your actual outflow for both fixed and discretionary costs.

2. Review your risk tolerance: “The investment mix is the engine of the retirement portfolio and must provide sufficient growth exposure for the long term, so it can’t be too conservative,” says Roy. She suggests you begin any risk tolerance review by considering how much you want to depend on your portfolio for nondiscretionary costs, like basic housing, food and health care. As market conditions change, you may feel the timing is right to assume more—or, in some cases, less—risk.

3. Have a strategy for drawing down: To successfully manage your portfolio, you also need to find a logical order for tapping into your different retirement accounts. “Many people choose to take assets from taxable accounts first, then tax-deferred and finally tax-free assets, in order to allow those assets more time to grow — and leave more to beneficiaries,” says Roy.

4. Anticipate long-term care: The golden rule of insurance is to get it when you don’t need it. In other words, you often find better rates and coverage if you seek long-term care insurance when you’re younger and healthier, rather than waiting until you are older or the need for it is made clear by a health problem.

By preparing for unanticipated expenses and having a ready strategy for meeting them, you put yourself in a stronger position to capitalize on unexpected opportunities or deal with changes of circumstance or heart.

As the couple from Florida found, having a vision doesn’t mean you’re bound to it. But by regularly revisiting your financial strategy, you give yourself the flexibility to update that vision as your life in retirement evolves.

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)